It’s time to reconsider private drug plans for public employees

Most people are probably aware of Fair PharmaCare, British Columbia’s universal public plan that covers everyone for catastrophic drug costs (other provinces have similar programs, such as Trillium in Ontario). BC’s program pays for nearly a billion dollars of prescription drugs every year.

Our provincial government also directly and indirectly pays for a lot of drugs through the benefit plans provided to nearly 300,000 public sector employees. In contrast to Fair PharmaCare, private companies such as Pacific Blue Cross and Sun Life administer these coverage plans.

Like Fair PharmaCare, these plans represent a large chunk of public funds: the available data suggest these plans cost just over $1,400 per employee in BC, for a total of around $417 million dollars every year.

These costs have not gone unnoticed. If you work in the BC public sector, you may have already seen a big change in your drug coverage. As part of continued moves to reduce expenditures, several major public sector unions have signed collective agreements that restrict their coverage to drugs that are covered by the provincial drug plan — a so-called “PharmaCare tie-in.”

Over the next several years, it’s likely that all public employees will be forced to move in this direction. This is smart public policy. It will save public funds that can be used to improve health care, education and other provincially run public services.

In general, the public plan chooses the most cost-effective drugs for particular treatments. So if two drugs have the same clinical effect but one is lower cost, the latter will be covered. In the past, most private drug plans for public employees paid for everything, even when cheaper and equally effective alternatives were available. The PharmaCare tie-in will reduce this wasteful spending.

It’s worth pointing out that the government does all the heavy lifting for these savings: they determine the list of covered drugs, they determine the clinical criteria for their use, and they process the special requests required for some drugs. The province also maintains the infrastructure to process every claim, as they already administer the Fair PharmaCare program.

All of which brings me to my key question: why are we wasting money on a private insurance middleman for public employee drug coverage?

Right now, our government is paying private insurers for what amounts to duplicative claims administration structures and processes.  Why not just cover these public employees with a public plan?  Such a change would be easy: public employees could simply be enrolled in a Fair PharmaCare plan that matches their existing drug plan, including the “tie-in.”

This would result in major savings for two reasons. First, it would eliminate entirely wasteful duplicative administrative costs. Remember, the province is already paying for just about everything needed to administer these benefits publicly. So the current administrative cost of these private plans is almost entirely pure waste. The administrative charges for large employers in Canada are typically 5%. Once all public employees were moved over and this duplicate administration was eliminated, this would save nearly $21 million every year.

Second, private plans pay higher prices for many drugs than public plans. In recent years, the BC government — like other governments around the world — has negotiated discounts with drug manufacturers in return for being on the list of covered drugs. As they are confidential, we don’t know how much these discounts are worth. In other countries, however, they lower overall drug costs by 20% or more. Private insurers in Canada have not engaged in such negotiations, so this is another area of pure savings. Even using a very conservative estimate of 5% savings, this would cut our public employee drug bill by another $21 million.

The choice essentially boils down to this: we can continue to pad the books of private insurers, or we can free up these funds for more productive uses. For example, $42 million in savings could pay for things that would benefit everyone, such as 400 additional nurses for our health care system, or nearly 500 new teachers in our schools.

So here’s my prescription for our new Minister of Health, TerryLake (and his colleagues in other provinces): it’s time to seriously reconsider private drug plans for public employees.

This editorial is reprinted with the permission of EvidenceNetwork.ca.

The comments section is closed.

  • Barb Shea says:

    In the early 1990’s Saskatchewan’s provincial public employees became eligible for extended health benefits. I was part of the Board who determined the scope of those initial benefits. From the get go Saskatchewan’s public servants had a “Pharmacare tie in” with their private drug insurance. I was Executive Director of the Saskatchewan Prescription Drug Plan at the time and for all the reasons you state, the range of benefits (i.e. those drugs covered under the formulary) made sense.

  • Chris Bonnett says:

    As always, Dr. Law raises many interesting and fundamental arguments about the place of privately administered drug plans, this time for public employees and retirees. However, there may be good reasons why other governments should not follow the BC example.

    Government drug plans – and those for all large employers – tend to be very complex, honour many collective agreements, have legacy designs, and include a host of administrative rules that have emerged over the last four decades. They’re messy, and require more claim system flexibility than a one-size or disease-specific provincial plan. This comes at a somewhat higher administrative cost.

    Further, since most governments contract with private sector companies for drug claim adjudication, there seems to be little to gain by switching administration from the private side of Blue Cross, for example, to the provincial side.

    Available data also suggest one system or approach is not better than the other. For example, CIHI data show minimal difference in expenditure increases over the last several years between provincial and private drug plans. Both management approaches – intense or laissez-faire – appear to have achieved similar financial outcomes.

    I agree with Dr. Law – let’s chase those administrative and product savings. But since his arguments extend beyond the topic of private coverage for public employees, so should a prescription for change.

    There is a role for both provincial and private drug plans. A sustained and deliberately collaborative strategy might more effectively address the gaps and inconsistencies in drug coverage which persist in both provincial and private drug plans. Good policy must now consider the whole market.

    • Michael Law says:

      Thanks for taking the time to respond, Chris. It will probably come as no surprise that I don’t think your points undermine my argument.

      I agree with you about the existing complexity of government drug plans. Just because public sector plans currently have a lot of complexity doesn’t mean that’s a good thing. In my view, this complexity is adding a lot of cost without adding much value. A simpler plan such as the one I proposed could be introduced when the respective collective bargaining agreements are up for renegotiation. The transition would not be without potential kinks, but I think in the long-term the savings would be well justified, and the result a much simpler system. This is particularly true in BC, where public sector unions are already being switched over to the public formulary.

      In terms of the administration, I disagree that there are no savings from switching off of a private carrier. All of the savings from product listing agreements would not be achieved by using a public formulary plan with a private carrier. While my estimates are very conservative, the actual savings would likely be much higher. As our private insurers for the most part don’t use managed formularies widely, these potential savings are lost. Further, the current administrative cost of uninsured plans is about 5% of premiums based on industry figures. Large provinces do much better – BC currently runs the provincial plan on less than 3% of their budget (and this includes all the duplicative management functions I mention above).

      Finally, I think your comparison about growth rates is misleading. As you no doubt recognize, public and private drug plans in Canada service very different populations. Public plans tend to serve those with the highest and fastest growing needs for pharmaceutical treatments—individuals over 65, individuals with particular chronic diseases, and individuals on social assistance. If anything, our public plans should be commended for maintaining the same growth rate as the private plans that serve much younger, wealthier, and healthier populations. I think that calling this performance level a “win” for private plans is disingenuous.

  • Hans says:

    An interesting option to reduce administrative costs and re-direct them to front line delivery.

    I wonder if the bureaucrats and politicians who influence or make decisions about the provision of medication for ‘public’ drug plans would be willing to accept the typically more limited selection vs. that which they have today? I have always wondered why these people are not asked to live by the same rules as the public which they serve.

    Might we suddenly see a more lenient attitude to adding new therapy options?

  • Dana Haas says:

    A great way to save costs to taxpayers. So much duplication in administration! We need this in Ontario too

  • DrPHealth says:

    Wonderful piece that brings the issues of drugs plans to the surface and some of the disparities and inefficiencies. A particularly disconcerting anomaly is some contracts provide coverage for contraceptives, others do not – and these could be individuals working side by side in the public service. In BC where you are writing from, administrative and health support workers and allied professionals do not have access to contraceptives. Non-contract workers and nurses do.

    How unfair is that? Many younger workers are in administrative and health support worker positions where accessible and affordable family planning support should be integral to providing a healthy work environment.


Michael Law


Michael Law is an assistant professor at the Centre for Health Services and Policy Research at the University of British Columbia.

Republish this article

Republish this article on your website under the creative commons licence.

Learn more